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Consulting have you noticed that
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literally everyone works in Consulting
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nowadays do you have friends who are
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Consultants are you a
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consultant it wouldn't be surprising as
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the Consulting industry has thrown by
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over 900% in the last 25 years to
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compare the global economy only grew by
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around 218% in that same period And I
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find it quite alarming that the sector
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of workers who regularly use words like
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stakeholder is growing five times faster
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as the sector where the normal speaking
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people work this is a video about the
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Epic rise of the Consulting industry and
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it's part two of my Consulting series a
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series where I explain why the
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Consulting industry is an absolute scam
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in part one I explained that Consultants
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aren't real experts it's linked down
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below so you can go watch it after this
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video in which I'll go into the scammy
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history of Consulting and explain how
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the hell this industry got so
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big like so many of us I was a so-called
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consultant too I lived day in and day
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out doing my fair share of the
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powerpointing excelling and
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stakeholding when I realized that
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Consultants aren't actual experts but
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usually just recent uni grads who got
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really good at PowerPoint I started
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getting obsessed with reading about what
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else is fishy in this industry and who
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would have guessed it there's a lot so I
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quit my consulting job of course now I
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had all this free time so as one would
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naturally do and instead of searching
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for a new job I sunk into reading
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everything about the history of
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Consulting I got so obsessed that the
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only reasonable way to cope with it was
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to make a YouTube video to answer the
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question why the hell the global economy
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is in need of so much Consulting so
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let's get into Consulting history
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101 we can all agree Consulting is a
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relatively new profession we have not
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really heard of farmer consultants in
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the Middle Ages who advised Shepherds on
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how to run their sheep hers or making
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Smith and sword making businesses more
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profitable so when did this rise of
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Consulting everyone and everything start
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let's jump to the 1870s a time where
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consultant wasn't a profession
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yet the Second Industrial Revolution was
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a time when advances in steel production
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electricity and petroleum caused a
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series of innovations that absolutely
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changed
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society that is when companies like
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General ELC and standard oil started to
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employ expert Engineers on short-term
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contracts the big difference to
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Consulting nowadays was that these
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Consultants were actual experts in their
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field and not some random business
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school grads with a bachelor's degree in
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management from some supposedly Elite
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uni called a Target uni amongst
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Consultants after some time some of
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these expert Engineers grouped together
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and started their own expert engineering
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consulting firms like for example Arthur
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D little who was a chemist from MIT who
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founded his firm in 1909 which today is
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a well-known consulting firm and they
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even site on their website that they are
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the world's first management consulting
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firm but expert Engineers grouping
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together wasn't the only development
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propelling management consulting into
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the1 trillion dollar industry it is
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today because quite frankly that
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wouldn't even be possible because
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there's not enough expert Engineers the
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Epic rise of Consulting can mostly be
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explained by the rise of the the vague
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and fuzzy concept of management advice
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in 1911 Frederick Taylor published his
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Infamous essay the Principles of
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Scientific Management Taylor's idea was
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that there is one right way to do things
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when organizing manufacturing work the
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one right way would be the most
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efficient and cost-effective way of
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performing a task this meant the
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standardization of work processes
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breaking down complex tasks into simpler
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standardized and repetitive actions as
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well as bring time and efficiency of
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workers to squeeze the most productivity
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out of them Scientific Management became
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very influential across the
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manufacturing industry it treated
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workers less as human laborers and more
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as resources of the factory sounds like
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an absolutely exciting working
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environment that was designed here
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Executives at the time thought so too
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because Scientific Management spread
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like wildfire also largely because it
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spawned a torrent of Management
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Consultant promoting it far and wide the
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study of management went on to overtake
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universities I mean the concept of study
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business administration or management is
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pretty new also no offense to anyone
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actually going to UNI for that but you
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might as well have studied soft skills
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another Factor contributing to the
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exponential growth of management
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consulting was regulatory changes and
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the rise of cost accounting cost
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accounting is a form of managerial
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accounting process that tracks and
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analyzes the cost of producing goods or
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services to better manage expensives and
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make a company more profitable in short
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it's just lashing unnecessary costs one
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of the earliest adopters and proponents
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of cost accounting was James o McKenzie
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having been a professor of accounting at
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the University of Chicago he went on to
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found McKenzie in company in
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1925 McKenzie in company is considered
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to be the most prestigious consultancy
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nowadays and I know it sounds hard to
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believe but the people working there
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probably say the word stay colder even
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more often than people in other
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consultancies like K has also been
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involved in quite a lot of scandals that
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I'll get to in this video and in the
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next videos because the deeper I get
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into this whole Consulting story The
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more stuff just like pops up but
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essentially McKenzie grew by giving
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advice to companies that most of the
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time involved laying off people to make
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the company more profitable in the short
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term and bump up the stock price one of
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the earliest examples of this was the
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department store chain Marshal field and
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Company McKenzie's advice involved
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curbing labor unions once and for all as
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well as cut cut cut in the end 1,200
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employees were fired something that went
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on to be known as McKenzie's Purge cool
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James o macken's Spirit of cutting
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unnecessary costs remains company
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Philosophy until today like when
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Mackenzie was hired to implement a
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transformational business plan called
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the carnegi way at us Steel in 2013 the
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consulting company recommended cutting
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expenses at the price of safety as well
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as banig and Michael forsight wrote in
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their book when McKenzie Comes to Town
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the worker said that the Carnegie way
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plan jeopardized their safety as
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McKenzie had no experience running a
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steel mill or what it takes to protect
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workers from harm especially the
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maintenance workers were hit hard dozens
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of them were laid off it warning proved
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prophetic when two workers died from
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electrocution the same thing happened at
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Disneyland in 1997 McKenzie presented
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the Disney CEO Paul presler with a
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report called transforming maintenance
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defining the Disneyland standard using
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terms like cost avoidance McKenzie
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recommended cutting back on maintenance
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eliminating jobs paying some people less
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and hiring Outsourcing contractors this
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led to several deaths and severe
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injuries at Disneyland and those are
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just the small scandals but before I get
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into the big ones let's continue our
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walk on the timeline of Consulting
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history how post-war capitalism shaped
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the Consulting industry
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during World War II management
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Consultants were increasingly hired by
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the US government across various sectors
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leading to the growth of Consulting
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contracts in both European and American
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governments other developments included
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the globalization and with it the
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merging and remerging of accounting
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firms so that by
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1996 90% of the revenues were coming
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from the big six acces which were the
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forerunners of the big four which I'll
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get to in a minute and as I mentioned in
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my last video are one of the biggest
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players in the Consulting economy also
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the big six realized that Consulting is
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a lot more lucrative than accounting so
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they shifted their focus to secure more
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and more of the Consulting contracts
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resulting in the main revenues now
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mostly coming from Consulting and not
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from
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accounting neoliberalism and
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financialization neoliberalism refers to
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the political agenda behind Market
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oriented reform policies it's all about
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deregulating Capital Market as well as
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lowering trade barriers and reducing the
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state's influence in the economy through
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privatization and austerity austerity
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means reducing public expenditure like
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social welfare neoliberal policies
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usually seek to increase the role of the
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private sector in the economy and
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society and decrease the role of
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government as NE liberals believe that
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the Invisible Hand of the market will
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just sorted out all for the best early
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neoliberalism's main characters were
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Margaret Thatcher who was elected to be
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the UK K's prime minister in 1979 and
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Ronald Reagan who became the president
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of the United States in 1980 and being
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really big fans of the free market and a
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lean government and both being their
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country's leaders seemed to be a bonding
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experience for them so they became
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besties also fun fact although thater
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and rean slash spending on the so-called
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welfare state their neoliberal policies
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did not end up reducing State
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expenditure also let me know in the
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comments if you want video about
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neoliberalism because there's loads more
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to explore about this topic and I'd
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absolutely love to make a video
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explaining how Nixon detach the dollar
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from the gold standard to fund the
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Vietnam War of fighting communism ending
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the Britain Woods agreement by detaching
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the dollar from the gold standard is a
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major factor playing in today's
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inequality so yeah leave a comment about
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that and while you're at it smash the
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Subscribe and the like but so this video
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reaches more people and more people get
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to hear about the Consulting industry
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being a scam anyway is back to how
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neoliberalism helped the Consulting
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industry
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[Music]
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explode the neoliberal era is marked by
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globalization and the financialization
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of markets financialization means that
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the finance sector gets more and more
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important relative to the overall
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economy and also that all kinds of Jazzy
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Financial products like derivatives and
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stuff like that are hitting the shelves
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anyways financialization also makes it
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easier to take on debt and make it
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Investments and that's how all the big
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companies started buying smaller
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companies like the accounting companies
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that got really big through buying up
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smaller acces in all the corners of the
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world that made it really easy for them
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to sell multinational strategies to Big
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corporations also it's pretty crazy how
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financialization has led to massive
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amounts of debt and the ever growing
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derivative Market which is a monster in
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itself let me know if you want a video
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about that anyways neoliberalism was
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exactly what was needed for government
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spending on management Consulting to
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explode when Margaret tcher was elected
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in the UK in
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1979 the government was spending around
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6 million on Consulting Services
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annually when Margaret Thatcher stepped
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down 11 years later the amount was more
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than 40 times greater at 246 million and
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rean the Consulting industry also went
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absolutely bananas and Consultants were
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Consulting on the wildest Things For
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example they help draft policies on when
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the government should hire Consultants
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unsurprisingly the Consultants came to
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the conclusion pretty often that
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government should Outsource even more
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work to
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them how the big six became big
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four in the late 1990s the big six
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became the big five because prize
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Waterhouse merged with Coopers and law
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brand to form price waterous Coopers
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known as PWC today but the most
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scandalous development that led to the
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big five becoming the big fool was the
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collapse of Enron this is one of my
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favorite corporate scam stories ever
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there and there's also an Epic movie
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about it that I very much recommend
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watching Enron was an energy and
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commodity Trading Company that collapsed
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in
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2001 all of the frauds started happening
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when Jeff Skilling switched from being a
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consultant at Mackenzie and only
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Consulting Enron to becoming its CEO and
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running the company with the help of his
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Mackenzie buddies who received $10
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million in Consulting fees from Enron
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every year Enron successfully lobbied
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for a deregulation of the California
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electricity market and Jeff Skilling
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created an increasingly competitive
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environment to reach the highest
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possible share price for Enron this
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included Enron Traders creating
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artificial power shortages so that the
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price would go up but Skilling also
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involved some very Creative Accounting
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in the running off his business
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including the use of shelf companies to
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cover up losses from investors and
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marketto Market accounting it all ended
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when their accounting fraud caught up to
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them and Enron collapsed I so that there
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accounting firm Arthur Anderson who had
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been part of the big five so now there
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was only the big four left also F side
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note Arthur Anderson had spun out its
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Consulting arm Accenture before their
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accounting fraud which is why the
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consulting firm Accenture is still among
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us but why are Executives so obsessed
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with pumping up the share price as
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quickly as possible
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anyways executive compensation and the
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importance of the stock
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price CEOs don't usually get a salary
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they usually get a mixture of fixed
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salary and variable performance-based
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bonuses like cash shares or call options
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on the company stock which means that
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it's especially lucrative for CEOs to
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bump up the share price as fast as
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possible instead of making long-term
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Investments and one of the fastest way
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to meet wall Street's expectations is
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through star reductions Enron is a great
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example how Executives will do anything
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for a high stock price they had a rank
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or yank policy which meant that they
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would fire the 20% worst performing
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employees every year this is how en run
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Executives made sure the share price
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remained Sky High and funly enough in
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the book when Mackenzie comes to town
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There's a section about how McKenzie
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viewed compensation and how it went did
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Enron since Mackenzie won't discuss
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executive compensation at specific
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companies its thinking on the matter can
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be gleaned in po by examining the pace
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structure at Enron the failed Energy
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company again and again the firm held
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out Enron as a model of the modern
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successful Corporation it was run by a
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former Mackenzie partner Jeff Skilling
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with help from Mackenzie Consultants one
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of whom even sat in on board meetings
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according to Forbes enron's top five
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Executives took in nearly 300 million in
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one year alone and more than 500 million
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over a 5year span ending in 2000 most of
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it from Cashing Out stock options Enon
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eventually collapsed amid allegations of
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fraud resulting in the loss of thousands
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of jobs Mckenzie was not charged with
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any wrongdoing but CEO compensation
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isn't the only thing tighted to a stock
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priz when us steel employed McKenzie
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their compensation was also tied to the
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US Steel stock price McKenzie's
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compensation was tied partly to the
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steel Maker's financial performance
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raising questions about the firm's
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motive and recommending cuts and
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expenses which in the end cost the lives
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of some of the US Steel
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Workers anyways there's loads more
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scammy stuff like the involvement of
00:15:20
consulting firms and Consulting Banks
00:15:22
like Leeman Brothers ahead of the
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financial crisis of 2008 also 200,000
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people have died from over doses in the
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opioid crisis and McKenzie who is facing
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criminal charges for the advice to
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Farmer companies had to cough up $573
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million in a recent settlement with us
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State Attorneys and the best thing is
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that part of the settlement is an online
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document repository that's available to
00:15:46
the public that entails all the work and
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emails mcken did for opio firms it's
00:15:50
full of fun emails like this one in
00:15:52
which Martin Elling a Mackenzie partner
00:15:54
writes about eliminating all of the
00:15:56
emails and documents relating to his
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opio work so I will dig myself into that
00:16:01
document repository in the coming weeks
00:16:04
and tell you all about it also I will go
00:16:07
into ESG consulting which is the latest
00:16:09
trends of the consultancies and another
00:16:12
huge problem it's basically the
00:16:14
consultancies are now offering
00:16:15
sustainability Consulting helping draft
00:16:18
sustainability regulations but at the
00:16:20
same time working for the oil and gas
00:16:22
giants on how to become more profitable
00:16:24
in the end Society is paying the price
00:16:26
two fold on the one hand with not being
00:16:28
able to stop climate change and on the
00:16:30
other with our tax money I'll get into
00:16:33
all of that in the next part of this
00:16:34
series so you can see for yourself how
00:16:37
the only sustainable thing about
00:16:38
Consulting is how they recycle their
00:16:39
PowerPoint slides from client to client
00:16:42
so make sure to subscribe all right bye
